Trump’s favorite scorecard for the trade war is finally improving, but not because of tariffs

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The US’s goods and services trade deficit fell by about 15% in January.
The decrease was largely thanks to a narrower gap with China.
Economists say that could be in part due to slowing front-loading and fading tax cuts.

The gap between American products shipped abroad and goods the US imports narrowed more than expected at the beginning of 2019.

The goods and services trade deficit fell by $8.8 billion, or about 15%, in January to a seasonally adjusted $51.1 billion, the Commerce Department said Wednesday. December’s gap was revised to $59.9 billion, the largest in more than a decade.

The amount the US shipped abroad climbed by 0.9% to $207.3 billion, while imports fell 2.6% to $258.5 billion.

The deficit with China decreased significantly in January, falling by $5.5 billion from a month earlier to $33.2 billion. Exports decreased $0.2 billion to $7.5 billion, and imports fell $5.7 billion to $40.8 billion.

That could have been in part due to a slowdown in front-loading — or companies rushing shipments ahead of anticipated escalations in the trade war between the US and China. The largest economies have placed hundreds of billions of dollars worth of each other’s products.

American soybean exports jumped by $0.9 billion in January, but shipments to China were still the smallest since 2010, according to Reuters. They had fallen sharply last year after China retaliated against the Trump administration with a 25% tariff on soybeans.

President Donald Trump sees the trade balance as an economic scorecard of sorts, even though they are determined by an assortment of factors. Those include foreign exchange rates, the strength of an economy, and how much a country borrows from abroad.

Tax cuts passed in 2017 energized the economy in 2018, when the US saw a steadily widening trade gap with the rest of the world. As the effects of stimulus measures in major economies fade, global growth is expected to slow over the next year.

"Leading indicators suggest import growth is unlikely to accelerate, especially as the dampening effects of fading fiscal stimulus and cooling domestic activity offset the improved purchasing power of a stronger dollar," said Gregory Daco, chief US economist at Oxford Economics.

The economy is expected to expand between 1% and 2% at the beginning of 2019. Trade looks set to make a positive contribution to growth, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"Trade subtracted an average of 0.3 percentage points per quarter from growth last year because domestic supply could not keep up with demand pumped up by the tax cuts, but that kick is now fading," he said.

Pantheon Macroeconomics

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